Yesterday the U.S. Government announced its plans to invest more than a third of the $700 Billion bailout money into nine of the largest banks in America. The biggest reason for this move was to restore confidence in our financial system. Several European governments did the exact same thing last week.
Why is this important and should you be concerned? Good questions on both accounts. Before I go into the details about how I feel this will help and possibly hinder our credit system, allow me to shed some light on the current state of things.
Listen, in the U.S. we have been through many “financial crisis” before. Anyone remember the S&L bailout from a few years ago? How about the “Black Monday” stock crash in October 1987 where the market lost well over 20% in one day? And of course, remember after 9/11 where the exchanges were closed for 4 days afterwards. In each of these cases, doom and gloom were being reported everywhere! Most people were predicting the fall of our economy and that the markets would never recover!
Just to give you a quick history lesson…less than 1 year ago our stock market was at an all time high. Now one short year later, we are at historical lows. There is an ebb and flow to the markets – they go up and they go down. Guess what, in the future we will have the same process repeated over and over again.
My point to all of this is that there is no need to panic and fear that the sky is going to fall. Now, don’t get me wrong, this current crisis is for real and will be far reaching. There are going to be people who suffer from it and there will be people who will profit from it. My counsel would be to remain calm and focus on getting your credit scores as high as you possibly can.
Why? Because in the coming months, only those with sterling FICO credit scores will have access to money at the most attractive rates when the banks start lending again. Remember, banks for the most part only make money when they lend money. (Yes, I know that the fees and other B.S. charges they ding us with are MAJOR profit centers for them).
Right now there is so much opportunity for real estate investors because the marketplace is filled with panic and fear. There is too much inventory, too many foreclosures, and people who were counting on their home being their own personal ATM are realizing that those days are over.
Our economy is still chugging along despite all of the fiascos on greedy Wall Street and from the politico’s in Washington who desperately want to keep their cushy jobs. Think about it – did you put gas into your car this week? (at a reduce per gallon price by the way), did you buy groceries, did you use your cell phone, did you log onto the internet, did you go see a movie? I think you get the point.
While we are not out of danger just yet, the key fundamentals are still in place, and more importantly we have gone through this cycle before. Those of you who are old enough may remember the Oil Embargo in the early 1970′s where OAPEC at that time cut off the supply of oil to countries that supported Israel during the Yom Kippur war. On a dollar cost adjusted basis, gas went from the currently $3.35 per gallon up to about $17 per gallon almost overnight! Do you think people were predicting gloom and doom and the end of the world back then? Guess what happened. Over a short time things rebounded and we got through it!
We will get through this, not by help from the next President or the riff raff on Wall Street, but by the same principals that have always gotten this country back on its feet. The tenacity of all of us. Perhaps even some good will come out of this latest crisis. Maybe we will think twice next time about giving people loads of free money when they have demonstrated over and over that they do not know how to handle or manage that money. Money, Credit, Mortgages, and such are a privilege, not a birthright.
I am all for folks having the American dream of home ownership, but guess what…not everyone qualifies! I am for educating people on how the system works, not automatic inclusion. Listen, my daughter will be driving soon, just because she has a license doesn’t mean she gets to race in the Indy 500 next year.
Stay tuned, we have many, many great credit opportunities ahead of us!
Mark
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